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Effects of bank consolidation promotion policy: Evaluating the Bank Law in 1927 Japan


  • Tetsuji Okazaki
  • Michiru Sawada


In recent years, there has been a wave of bank consolidations that has spread across the world, and bank consolidation has been one of the major issues of the research on banking and finance. This paper explores the role of government in bank consolidations, using the data on prewar Japan. The data on prewar Japan are useful, because not only there were numerous bank consolidations, but also we can identify consolidations promoted by the government policy. The Bank Law of 1927 set the minimum capital criterion for banks, which came to be a powerful measure for the government to promote consolidations. In this paper, we identified policy-promoted consolidations referring to the minimum capital of the bank, and examined the effects of policy-promoted consolidations in comparison with other consolidations. It was confirmed that policy-promoted consolidations mitigated the financial crisis by enhancing the ability of the bank to collect deposits, under the condition that the financial system was exposed to serious negative shocks. On the other hand, policy-promoted consolidations had negative aspects. They were accompanied by large organizational costs, and decreased bank profitability.

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  • Tetsuji Okazaki & Michiru Sawada, 2004. "Effects of bank consolidation promotion policy: Evaluating the Bank Law in 1927 Japan," Discussion papers 04004, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:04004

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    References listed on IDEAS

    1. Lerner, Josh & Tirole, Jean, 2002. "Some Simple Economics of Open," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 197-234, June.
    2. Masahiko Aoki, 2013. "Toward an Economic Model of the Japanese Firm," Chapters,in: Comparative Institutional Analysis, chapter 18, pages 315-341 Edward Elgar Publishing.
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    4. Masahiko Aoki & Hirokazu Takizuwa, 2013. "Information, Incentives, and Option Value: The Silicon Valley Model," Chapters,in: Comparative Institutional Analysis, chapter 7, pages 72-104 Edward Elgar Publishing.
    5. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    6. Williamson, Oliver E, 1995. "Hierarchies, Markets and Power in the Economy: An Economic Perspective," Industrial and Corporate Change, Oxford University Press, vol. 4(1), pages 21-49.
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    Cited by:

    1. Randall Morck & Bernard Yeung, 2017. "East Asian Financial and Economic Development," NBER Working Papers 23845, National Bureau of Economic Research, Inc.
    2. Ahmad Bello, Dogarawa, 2006. "Challenges of Bank Consolidation to the Central Bank of Nigeria: A Descriptive Analysis," MPRA Paper 23198, University Library of Munich, Germany.
    3. Kris James Mitchener & Mari Ohnuki, 2007. "Capital Market Integration in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(2), pages 129-154, November.
    4. Kris James Mitchener & nd Mari Ohnuki, 2007. "Capital Market Integration In Japan," IMES Discussion Paper Series 07-E-17, Institute for Monetary and Economic Studies, Bank of Japan.

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